It is important to understand what your goals are, and over what time period you want to achieve your goals. Some goals are short term goals those that you want to achieve within the year. For such goals its important to be conservative in one’s approach and not take on too much risk. For long term goals, however, one can afford to take on more risk and use time to one’s advantage.

Every individual should know what their capacity to take risk is. Some investments can be more risky than others. These will not be suitable for someone of a low risk profile, or for goals that require you to be conservative. Crucially, one’s risk profile will change across life’s stages. As a young person with no dependants or financial liabilities, one might be able to take on lots of risk. However, if this young person gets married and has a child, he/she will have dependants and higher fiscal responsibilities. His/her approach to risk and finances cannot be the same as it was when he/she was single.

When do you need the money to meet your goal and how quickly can you access this money. If you invest in an asset to and expect to sell the asset to supply you funds to meet a goal, then please understand how easily you can sell the asset. Usually, money market and stock market related assets are easy to liquidate. On the other hand, something like real estate might take you a long time to sell.

Inflation is a fact of our economic life in India. The bottle of cold drink that you buy today is almost double the price of what you paid for ten years ago. At inflation or slightly above 4% per annum, a packet of biscuits that costs you Rs 20 today will cost you Rs. 30 in ten years time. Just imagine what the cost of buying a car or buying a home might be in ten years time! The purchasing power of your money is going down every year. Therefore, the cost of achieving your goals need to be seen in what the inflated price will be in the future.

As you make investments, think about whether you are looking for capital appreciation or income. Not all investments satisfy both requirements. Many people are buying apartments, but are not renting them out even after they take possession. So, this asset is generating no income for them and they are probably expecting only capital appreciation from this. A young person should usually consider investing for capital appreciation to take advantage of their young age. An older person however might be more interested in generating income for themselves.